Share sales creates a frenzy in the “grey market” as private investors bet the
Royal Mail’s shareprice will start trading at £4.03 - well above the
government's guide price.

Retail demand for Royal Mail shares is the highest the City has seen since lastminute.com more than a decade ago, experts have said.

IG Index said private investor excitement in the Government sell-off has created a frenzy in the “grey market” ahead of the final deadline for share applications tonight. Private investors were betting that Royal Mail’s shareprice will start trading at £4.03 - more that 70p higher than the Government’s top guide price.

David Jones, chief strategist at IG Index, said: “The last time we saw a grey market as popular as this in the UK was lastminute.com in 2000. It’s nearly as popular as Facebook 18 months ago.”

He added: “It’s the stock that everyone in the UK has got a view on, whether’s it’s too expensive or a bargain. It’s also the first Government sell-off for a while and people remember that the others did well to start with, so they are looking for a repeat.”

City brokers said that the institutional demand for shares is high too, with many putting in “vast orders” in the expectation that allocations will be scaled back.

Gert Zonneveld, co-head of research at Panmure Gordon who last week argued that Royal Mail was being undervalued by £1bn, said: “Investors are expecting Royal Mail to go into the FTSE100 and so many are trying to get the weighting they would give to other big stocks. They’re saying that they’re putting in vast orders in the hope they get what they want in the end.”

Hedge fund investors have been applying for big allocations too amid expectations that the shares jump as much as 20pc in early trading.

The Government has said it will sell a minimum of 52pc of Royal Mail with a further 10pc stake being given to staff. The “overwhelming” majority of Royal Mail staff have decided to accept the share offer, despite the threat of strikes from unions that oppose that sale.

Of the stake sold, 70pc is being offered to institutional investors and 30pc will go to private shareholders. If the demand is high enough, the Government has said it will make more shares available up to a maximum of 60pc of its current holding.

The initial private offering was originally prices at between £2.60p and £3.30p. The guidance was last week revised to between £3 and £3.30 which would value the delivery company at around £3.3bn. The final price will be announced on Friday with a list of institutional share allocations. The shares will be openly traded next Tuesday.

Chuka Umunna, the shadow Business Secretary, called for the sale to be pulled because it’s undervalued. “The Government should never have valued the company so low in the first place. It appears to be selling it at an undervalue,” he said. “The Government could pull the plug on this privatisation. It should pull the plug.” He added that the privatisation will result in a “massive bonanza” for city speculators.

IG Index’s Mr Jones said the Government’s price was fair. “Royal Mail was always going to create a lot of interest but still the Government had to strike a balance between making [the IPO] attractive and avoiding a flop.”

He said that retail investors are turning to spread-betters because the bulk of the shares are being offered to institutional investors. “Many are expecting that the shares they’ve applied for to be scaled back,” he said. “They are coming here to ensure that they get exposure to Royal Mail even if their allocation doesn’t come through.” He added that some retail investors reckoned that the excitement was getting out of hand. “We’ve also seen some notable sellers today for the first time,” he said. “Some are clearly thinking that at £4 the price has over-extended.”